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The Billion Product Company.

October 5, 2014

Here’s a question that’s so pointless no one ever asks it: Why do companies limit the number of different products they make? I mean, why doesn’t a company that operates in a given industry – say, shoes – make every conceivable variation that any customer might possibly want, thereby winning every customer’s business? I can think of a few reasons:

First, the cost of design and development. It takes a lot of time to create a new product. An estimation for the industry I work in – furniture – is that it takes about three person-years to design a product, build multiple prototypes to resolve all the details, and get it ready for production. Do the math on that labour cost, and even large companies would hit a ceiling, either because they’d used all available capital, or because small market niches didn’t justify the initial investment.

Second, the cost of “tooling up”, as the manufacturing people call it. I recently had a great discussion with my friend Duncan, who I hadn’t seen in quite awhile. Duncan is an engineer, and he’s spent the past couple of years developing a clever plastic container that he believes is going to make a splash in the marketplace. It’s going to cost Duncan upwards of $100,000 for injection molds for this product, before he can sell his first one. The molds will not be used for anything else but this one specific product – the only thing he can vary is the colour of the material. Clearly, it’s not feasible to make a different plastic container for each customer’s specific needs. Even in furniture, where manufacturers are pretty averse to dedicated tooling, a new design typically requires jigs, templates, and machine setups for each step in production of each individual component. Once in production, companies spend a lot of time changing from one setup to another, and once something is running, they have a strong incentive to make lots of it – even if there are no orders for those parts yet, and they could end up sitting in inventory for a long time.

A third reason is the cost of marketing, which includes distribution (getting product to where the customer will buy it through logistics and inventory), determining the price and positioning of the product, and of course, telling the world your great new product exists. I’m guessing that when Procter & Gamble launched the Swiffer, they probably spent as much (or more) on telling the world that it really needed a Swiffer, as they spent on product development and tooling.

The final reason is really a different angle on the ones I’ve already mentioned: uncertainty. Ever wonder why business is risky? I mean, we all know that business is risky, but why? I think it boils down to the fact that you have to spend money on developing your product or service, and on some sort of promotion of that product, before you know whether anyone is going to buy it – if they don’t, you’re screwed. If you could look into the future, and see that your amazing new invention was actually something that no one but you and your mother had any interest in, you could abandon it before you sunk a lot of time and money into it. If Duncan knew how many customers were going to buy his clever plastic container, he could make decisions that would match the level of demand he was going to encounter. He would spend his cash more effectively than he’s likely doing now – him and every other entrepreneur and multinational on the planet. (This is the core benefit of crowdfunding – you get to find out how many customers you’re going to have – and get some of their money – before you spend all the money necessary to make the product.)

So here’s where I’m going with this: What if you could eliminate all these costs? What if you could drive the cost of product development and tooling to zero? What if you could design each product variation in mere seconds, rather than months or years? What if all the products were made using a standardized set of tools and processes with no dedicated molds or fixtures? And what if they were only made once someone had bought them? This isn’t possible for Duncan – some things are still best made with dedicated molds and dies. But in my industry, residential furniture, removing the costs of product variation is possible – and we’re about to start doing it. We don’t have a billion products just yet, but we’ve built a platform that supports that number. All we need now, is for you and 999,999,999 of your friends to design the custom furniture you want. We’d be happy to build it for you.

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